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Relationship-Specific Sunk Costs and Exporter Decisions

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  • Pham, Cong Si
Abstract
Using macro-level trade data, we investigate how different types of sunk costs influence decisions of exporters. We make a distinction between the relationship-specific sunk costs that depend on the interactions between the exporter and the importer and sunk costs that do not. We find that exporters’ decisions reflect sensibly their desire to minimize those sunk relationship-specific costs. Specifically, exporters of differentiated products are more likely to reenter the export market than exporters of homogenous products. Also, the former are more likely to stay in the export market and exhibit more stability when doing so than the later. All of our findings are consistent with the view that relationship with their foreign partners matters more for trade in differentiated products than in homogenous ones.

Suggested Citation

  • Pham, Cong Si, 2007. "Relationship-Specific Sunk Costs and Exporter Decisions," MPRA Paper 9473, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:9473
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    References listed on IDEAS

    as
    1. Besedes, Tibor & Prusa, Thomas J., 2006. "Product differentiation and duration of US import trade," Journal of International Economics, Elsevier, vol. 70(2), pages 339-358, December.
    2. repec:bla:reviec:v:8:y:2000:i:3:p:373-96 is not listed on IDEAS
    3. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
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    6. Keith Head & John Ries, 1998. "Immigration and Trade Creation: Econometric Evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 47-62, February.
    7. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • F1 - International Economics - - Trade

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